March 03, 2009

Longer mortgages only add to debt

It should be pointed out that the proposal for 50- or 100-year mortgages would not be all that different from a proposal to make interest-only mortgages the industry standard ("Redesigning mortgages," Commentary, Feb. 27).

Yes, a $200,000 mortgage loan at 5 percent for 50 years would have only a $908 monthly payment. But in the first month, $833 would go toward the interest, and it would take 15 years to pay back just 10 percent of the principal.

And to get a lender to commit to so long a loan would probably require paying a higher rate than the historically low 5 percent mortgage rate used in the example. In that case, the numbers get much worse for the borrower.

Focusing only on monthly payments with no long-term plan for paying down the debt is one of the root causes of the housing crisis. Homebuyers would be better served with monthly payments that allow them to build equity, even if it means scaling down or deferring their homebuying choices.

Joseph Ganem, Reisterstown

The writer is a physics professor who has written a book about how people get confused by numbers in financial decisions.

Can cold explain electricity prices?

Officials of Baltimore Gas and Electric Co. have a pat answer about higher gas and electric bills: cold temperatures ("BGE blames weather," Feb. 27).

I have a question that apparently was neither asked nor answered during the recent hearing on this issue: Does a light bulb cost more to operate in my living room when it's 20 degrees outside than when it's 40 degrees outside?

I have oil heat and hot water in my house, but my electricity bill went sky high in January and February.

I don't think low temperatures explain my cost increases.

John T. Wiland, Hampstead

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